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Jul03

The health care ruling's upside for private companies

Thursday's U.S. Supreme Court ruling is reviving impassioned discussions about whether President Obama's health care law will be positive or negative for businesses, especially smaller ones. 

Sageworks CEO Brian Hamilton

And while those debates will continue for months or maybe years, one immediate, positive impact on owners of privately held businesses is that they know more about what to expect in the short term, said Brian Hamilton, co-founder and CEO of Sageworks Inc., a financial information company that tracks private companies.

"You've got to remember the psychology of people who run privately held companies," Hamilton said. “If they have time to plan, the legislation is less important than the time horizon.”

Business owners already operate in very high-risk environments that most people would find unacceptable, according to Hamilton. “They are real people with real budgets and real bills to pay, and they must navigate a forest of data and changes that are lumped on them,” he said. “When they are confused or uncertain, they’re less likely to take on more risk by hiring or taking other steps to grow their businesses.”

Indeed, a Sageworks survey this spring found private companies were too nervous about the future to ramp up hiring.  Privately held companies drive more than half of U.S. GDP and create more than 65 percent of new jobs. Sageworks has a proprietary database on private companies that is derived from financial statements aggregated from financial professionals using Sageworks’ cloud-based financial analysis tools. It provides a snapshot of financial metrics across industries and across the universe of 27 million privately held companies in the U.S.

Most businesses have anticipated major changes in health care since the law passed in 2010, though there’s been uncertainty about which aspects of the law might be struck down or changed. Thursday’s ruling means that while costs, on balance, will increase for smaller businesses, at least companies can plan for them.

“Businesses with fewer than 10 employees with $25,000 or less in average annual wages that are currently providing health care insurance will benefit,” Hamilton said. “These are the businesses that qualify for the full tax credit.”

“If you are a low-profit-margin business with over 50 employees and you are not currently offering health care, your business is adversely affected,” he said. “There will be an additional charge, and it will be expensive, but they’ve been anticipating it. Companies that are nearing the 50-employee threshold may begin to think twice before hiring additional employees.”

Still, many business owners have been expecting national health care, Hamilton said, “So we don’t expect there to be a huge fallout” from this week’s ruling alone.

One issue that hasn’t been discussed enough, however, is that the new changes related to health care have to be considered in the larger context, he said.

“Over the past 70 years, there are hidden costs that private companies have had to incur through complying with regulations,” Hamilton said. “There is untold time and money that business owners put into just complying with regulations rather than running their businesses.”

U.S. business owners have been dealing with a lot of uncertainty in recent years, and they'll continue to face it. For example, the pending expiration of the Bush tax cuts could make business owners less likely to spend money on new equipment or hire new workers, since the expiration would mean less money in these owners' checking accounts, Hamilton said. 

See the full column, originally published on Forbes.com here.